Join our community of smart investors

Morrison in the red

TIP UPDATE: Alongside a disastrous set of full-year results, Morrison has unveiled plans to spend £1bn slashing prices and investing in its stores
March 14, 2014

"Last year was clearly a difficult year," said Dalton Philips, chief executive of the beleaguered supermarket chain Morrison (MRW), as the company reported its full-year results. That's an understatement: it was disastrous. Like-for-like sales, excluding fuel and VAT, fell 3 per cent and underlying pre-tax profit slumped 13 per cent to £785m. Throw in exceptional costs totalling £903m, along with other charges, and the grocer slipped into the red with a pre-tax loss of £176m.

IC TIP: Sell at 205p

Mr Dalton blamed the poor performance on competition from discount grocers such as Aldi and Lidl, and said the industry was undergoing its most significant change in over 50 years. "There has been a fundamental change in the way consumers view discounters. They no longer go to them as a necessity. Discounters are now just small supermarkets. There is a new price norm."

To combat these problems, Morrison will invest £1bn over the next three years in cutting prices, simplifying its own ranges and introducing a loyalty card, with £300m earmarked for the current financial year. The investment will be funded by £1bn of cost savings, to be achieved through measures such as improving store productivity, procurement and more efficient manufacturing.

Morrison will also raise £1bn over the next three years by selling freehold property assets, including stores. Between £400m and £500m-worth of property will be offloaded this year. The Kiddicare business will also be scrapped, along with Morrison's stake in New York online grocer Fresh Direct. The online operation through Ocado will continue to expand; last year Morrison paid £9m in operating, research and development, and rent costs to use Ocado's facilities.

Asked about his position as chief executive, Mr Philips said: "I faced four structural challenges: online, convenience, antiquated systems and the discounters. I've addressed the first three and I'm addressing the fourth."

Management expects underlying pre-tax profit to fall to between £325m to £375m this year, including £135m of exceptional costs. Broker Jefferies is forecasting underlying EPS of 14.4p in 2015, down from 25p in 2014.

WM MORRISON (MRW)
ORD PRICE:205pMARKET VALUE:£4.8bn
TOUCH:204-205p12-MONTH HIGH:312pLOW: 198p
DIVIDEND YIELD:6.3%PE RATIO:na
NET ASSET VALUE:201pNET DEBT:60%

Year to 2 FebTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201015.485822.88.2
201116.587423.99.6
201217.794726.710.7
201318.187926.711.8
201417.7-176-10.213
% change-2--+10

Ex-div: 7 May

Payment: 11 Jun